FACTBOX-Key political risks to watch on the Korean peninsula

March 11, 2013|Reuters

SEOUL, March 12 (Reuters) - North Korea again defied theUnited States, Japan, Russia, the South and the United Nationswhen it tested a nuclear bomb in February. The test, whichPyongyang said was intended to counter hostility fromWashington, also drew condemnation from Beijing, its only majorally.

The test brought a new set of sanctions from Washington andthe U.N., effectively scuttled the remote prospect that youngleader Kim Jong-un was contemplating reform, however tentative,and instead repeated a sequence of events straight from hisfather Kim Jong-il's regime.

South of the border, most people were indifferent to or atworst irritated by the nuclear detonation. Top of the list ofconcerns for South Korea's President Park Geun-hye, who tookoffice on Feb. 25, is a deep slump in growth for itsexport-driven economy.

The final quarter of 2012 was the seventh consecutivequarter to feature sub-1 percent growth, its longest run of suchslow expansion for more than four decades.

SOUTH KOREA RATINGS:

S&P: A+

MOODY'S: Aa3

FITCH: AA-

These are the main political risks to watch:

NORTH KOREA: BACK TO THE OLD ROUTINE?

Kim Jong-un's public appearances last year at a pop concert,on a rollercoaster, and with a wife in Western-style clothes mayhave raised eyebrows and some hopes that he was ready to departfrom the traditional template of provocation and isolation, butFebruary's nuclear test and what followed showed he is very muchhis father's son.

The U.N. and U.S. imposed new sanctions as punishment forthe February test, moves to which the North responded by onceagain threatening a preemptive nuclear strike against the UnitedStates, an act far beyond its technical capability.

Denunciation from the international community carries nopersuasive weight in the country which exists far beyond theboundaries of normal diplomacy, while the one nation which doeshave levers to pull in the North, China, is less likely thanever to take meaningful action.

The U.S. military "pivot" towards Asia, combined with alongstanding fear that a collapsed North would lead to apro-Washington unified Korea on its border, means Beijing feelsit has little choice but to carry on backing the Kim regime withmoney and trade.

Barring a decisive intervention from outside, which isextremely unlikely, the only threat to Kim's grip on power willcome from within.

Serious challenges will only arise if the army and thehandful of families who control practically all resources thatenter the country feel threatened, and with political reform noteven close to appearing on Kim's "military-first" agenda, thereis nothing to suggest this is on the horizon.

What to watch:

- Any sign that new sanctions against North Korea arebiting.

- More aggressive lines taken in Washington, Tokyo and Seoul.Signs, however improbable, that Beijing is losing patience withKim Jong-un.

SOUTH KOREA: CHALLENGES FOR PRESIDENT PARK

President Park Geun-hye, the daughter of South Korea'sformer military ruler Park Chung-hee, won December elections tobecome the country's first female leader, but takes over aneconomy whose years of rapid growth seem unlikely to be repeatedsoon, and a society increasingly haunted by inequality and fearsof unemployment.

The finance ministry has set its first growth target for2013 at 3 percent while the Bank of Korea in January forecast a2.8 percent gain for 2013 gross domestic product. The medianforecast from the latest Reuters survey in January was for a 3.0percent rise for the year.

A common complaint among South Koreans is the behaviour ofbig business groups known as 'chaebol', which include thecountry's best known firms like Samsung and Hyundai. Oftenaccused of corrupt practices and exerting undue influence onlawmaking, these family-owned firms control assets worth morethan half of country's GDP.

Park's left-wing challenger had threatened to end the web ofshareholdings that permit family control of such hugeenterprises, but she is unlikely to limit their scope.

The central bank held interest rates steady for a fourthstraight month at 2.75 percent, but warned that Japan's monetarypolicy could impact growth.

A weakening yen means Japanese products are more competitiveoverseas, and is bad news for the South Korean car and consumerelectronics firms which compete against Japanese exporters.

What to watch:

- Signs of a pickup in the euro zone and other Westerneconomies where South Korean exports are consumed.

- If the weakening yen prompts South Korea to try to lessenthe value of the won.